Barton Biggs is known for his years as a highly regarded, and highly quotable, investment strategist at Morgan Stanley. In 2003 he left that firm to form a hedge fund called Traxis Partners, and wrote a fun and popular book called "Hedgehogging" about that world.
Less fun and less popular was the book he published in 2008, called "Wealth, War & Wisdom." It's a little all over the place--part narrative history of the greatest events of World War II, part mini-biography of that war's leaders, part stock market history, part argument for the wisdom of crowds, and part disaster survival guide. However I think behind it all is a unifying insight. Although he doesn't express it in so many words, and I'm going to have to stretch some definitions in order to argue my point, I believe the book is ultimately about liquidity vs. illiquidity, about safe vs. risky assets, as broadly understood. This unifying insight is very useful for our mythical family patriarch, on whose investing success over 100 years the fate of civilization depends.
To start with one of Biggs' main points: For the preservation and growth of purchasing power over long periods, equities are the place to be relative to "safer" assets like government bonds and cash, even during periods of crisis like war and even, a little surprisingly, for the defeated countries. They best allow you to benefit from compounding (of companies' retained earnings) and are the best, although still imperfect, long-term inflation hedges.
However, to get the superior returns available from equities requires that you commit to holding equities. As David Swensen points out in the introduction:
In other words, don't be fooled by what Keynes called "the fetish of liquidity." Stocks may be liquid as conventionally defined--you can sell them whenever you want--but successful equity investment, for the vast majority of investors, requires a deliberate embrace of illiquidity. Furthermore, especially during wartime, liquidity has a disturbing tendency to evaporate, or exact a terrible penalty, just when you need it. Great Britain essentially confiscated its citizens' holdings of US securities in order to raise badly-needed foreign exchange during the war. Even without the government getting involved, chances are that when you desire the liquidity the most, everyone else does too--just read today's newspaper.
That's not a particularly new or interesting insight. What is interesting is that Biggs makes this argument alongside many stories of people--many of them the patient, long-term investors whom Biggs and Swensen would ordinarily praise--whose wealth and lives were destroyed by the war. It seemed incoherent at first, but as I thought about it I came to understand what Biggs was trying to say: Your embrace of illiquidity/"risky" assets in one sphere must be balanced, or hedged, by great liquidity, broadly defined, in another.
This is true most simply in the literal financial sense. You can't get the benefits of long-term equity investing without having sufficient liquid assets, either cash reserves or secure cash income, to meet your needs while you're waiting. And "to meet your needs" includes all debt service obligations, including the dreaded margin debt, which, as Biggs points out, undid even Keynes himself.
But it's also and more crucially true in the metaphorical sense of liquidity. If literal liquidity refers to the ability to exit an asset quickly and without financial penalty, then by metaphorical liquidity I mean the ability to exit a geographical location like a country, a lifestyle, even a conception of oneself, in a similar way. Many a German Jew lost his fortune in the war because he was long an asset that the Nazis rendered illiquid through punitive taxes and capital controls. But how many lost their lives because they were illiquidly long Germany itself and their place in it, with neither the physical (assets in a safe haven country, jewelry to sell on the black market) nor the psychological (the ability to leave your comfortable life behind and start again) means to exit?
If you, like our family patriarch, are investing for the next 100 years, then there is little doubt that you will endure a war, maybe more than one. History shows that the time to think about it is well before it happens, as events nearly always overtake you. The books has many concrete suggestions about what to do but I think the main point is that you must combine illiquidity and liquidity, literal and figurative, in order to preserve both your wealth and yourself.